The Increasing Threats to Global Energy Supplies - An Interview with Jellyfish

As global energy supplies come under increasing attack by non-state actors
and private energy holdings become key targets of political maneuverings and
criminal activities, Oilprice.com discusses the nature of the growing threat
and how to reverse the risk with "smart power."

To help us look at these issues we got together with Corporate intelligence
specialists and security expert Jennifer Giroux.

Michael Bagley is the president of Jellyfish, a global boutique intelligence
firm that combines on-the-ground intelligence collection and analytics with
an unprecedented country-to-country economic diplomacy program that helps governments,
corporations, institutions and private individuals forge secure partnerships,
discover new opportunities and mitigate operational risks.

Jennifer Giroux is a global security expert who specializes in emerging
threats to energy infrastructure in conflict-affected regions.

In the Interview Michael & Jennifer talk about the following:

Why the risk to global energy supplies is increasing

Violent entrepreneurialism: Why piracy is on the rise

The most immediate threats to global energy security

Which countries are most likely to see attacks in the future

Why Saudi Arabia could be the next country to have its energy infrastructure
come under attack

Why energy companies assets are becoming key targets.

How energy companies can create opportunities in Conflict-Affected Regions

Why companies need more than just intelligence to operate in hostile environments

Oilprice.com: Energy supplies have always been at risk, particularly due
to geopolitical maneuverings, transit through countries in conflict and those
suffering from ongoing political instability, as well as piracy on the high
seas. You have both mentioned that the risk to global energy supplies is
increasing. How do you support that claim?

Jennifer Giroux: There is a plethora of energy location and armed conflict
data that shows a correlation between conflict or conflict prone regions and
oil and gas producing and/or transit states, both onshore and offshore.

While developing the Energy Infrastructure Attack Database (EIAD), we have
seen a general rise in attacks on energy assets. In the last decade there has
been an average of 327 reported attacks on energy infrastructure globally,
and this figure is likely higher due to the fact that not all attacks are reported
through open sources.

Pooled together, the data reveals that not only are energy companies increasingly
operating in risky, volatile environments and conflict zones, but their assets
are becoming key targets for political and criminal reasons.

Michael Bagley: More specifically, non-state actors from Mexico to
Colombia, to Nigeria, Iraq, Pakistan and beyond are leveraging their terrain
in dynamic ways. They are using energy infrastructure targeting as a tool to
air political grievances in a calculated manner. For example, to garner illicit
funds by stealing oil products and kidnapping energy sector employees, but
also to generate global media attention that not only provides a springboard
for groups to publicly challenge a state but also to inspire similar targeting
behaviors in other regions.

Jennifer Giroux: Another interesting insight from EIAD shows that while
energy attacks are dispersed they tend to have a contagion or clustering effect
in certain countries. In such cases, we find that energy infrastructure is
targeted on a monthly, weekly, and at times daily basis - leading to broad
disruptions that have national and international effects. This has been the
case in Egypt's Sinai Peninsula, where natural gas infrastructure has been
targeted on a monthly basis since February 2011 and disrupted energy supplies
for Israel and Jordan. Yemen, too, has seen persistent attacks on the Marib-Ras
Isa oil pipeline, for instance, that has led to a several-month shutdown that
cost the country billions in revenue and shorted global supplies.

Michael Bagley: While those cases represent politically motivated attacks,
in Nigeria the oil theft and sabotage business has resulted in Shell declaring
force majeure on Nigerian Bonny Light crude oil and shut down 60,000 barrels
per day of oil. Offshore, energy carriers are being targeted throughout the
Gulf of Guinea, making this the new maritime piracy hotspot. Overall, this
is a highly complex issue that makes it increasingly difficult for energy companies
to navigate and operate in such spaces.

Oilprice.com: Geographically, what are the most immediate threats to global
energy security?

Giroux: Of course with the effects of the Arab spring still percolating,
the Middle East and North Africa region will continue to go through a tested
and difficult time. With that, the urgent security consideration is Saudi Arabia
as attacks or even threats to their installations have the most potential to
disrupt supplies and the market. Though there have been some bright spots in
Iraq's oil production, the country still have significant challenges that threaten
stability on a near daily basis. I would not be surprised if we see another
flashpoint of energy infrastructure attacks in this country.

Bagley: One can also not count on Libya to be a reliable production
space given the turmoil and political transitions underway. Another region
is Gulf of Guinea where international oil companies are incredibly important
for production and exploration activities. Nigeria, and the Niger Delta in
particular, produces light sweet crude that is incredibly important for the
global market. No doubt that when these supplies are disrupted the market reflects
that insecurity with price volatility.

Oilprice.com: While most are aware of the rising incidence of piracy off
the Somali coast and the threat to oil transit, how great is the threat now
emanating from the Gulf of Guinea as an offshoot in part of the conflicts
in Nigeria and unrest in Mali, for instance?

Giroux: Well, as it's been reported - maritime piracy is on the rise
in the Gulf of Guinea. Furthermore, attacks in this region are not confined
to the coastal region near Nigeria (where they have been historically) but
are not spreading to the shores of Togo, Ghana, Cote d'Ivoire, etc. This reveals
not only the security gaps in this region but also the violent entrepreneurialism
that is spreading across the states. Offshore attacks in this year are executed
by gangs that use brute force to attack ships, steal contents including petrol
products, and then release the ship have a few days or weeks.

Bagley: Also, oil theft gangs are multi-national. For example, in a
recent arrest of 27 people accused of stealing oil, 5 of them were Nigerians
while the remainder were Ghanaians. The key take-away is that this is spreading
and will thus become more complex and challenging to untangle the more sophisticated
these oil theft gangs become. What's more is that we cannot forget the regional
context - the high unemployment, growing illicit drug trade (transiting drugs
from South America via Africa and onto markets in Europe), and weak governance
issues. This makes it a high opportunity space for criminal groups to flourish
and recruit.

Oilprice.com: How does the nature of the threat provide us with a framework
for dealing with the threat?

Giroux: In these volatile regions, multinational energy companies are
embedded in host communities that have legitimate grievances related to the
lack of public goods and services such as clean water, decent roads, and electricity.
These grievances tend to fuel tensions and hostilities with the state that
can then ripple over to hostilities with the energy companies in that area.

Bagley: In such cases, the balance of power -- and the impact should
they turn their aggression to targeting the country's energy assets -- is in
many cases on the side of the communities. Federal governments and institutions
are weak, and responses tend to be military, which generally only exacerbates
and escalates conflict. Yet, multinationals have incredible power in these
countries and, indeed regions and thus need to re-conceptualize how they operate
and do business in such spaces.

Giroux: I would argue that this begins by re-thinking what corporate
responsibility means in these zones. Building a school in one community and
passing out generators does not address the deep underdevelopment issues and,
in fact, can exacerbate grievances. Rather what is needed are better community
relations and a development of a more holistic approach that includes not only
working with local stakeholders such as community members, local businesses,
and NGOs, but also coordinating the delivery of local development needs with
other energy companies operating in the same challenging region.

Bagley: Of course, the conventional understanding of states argues
that state actors are responsible for the provision of public services like
electricity and roads, but in such environments the states are oftentimes too
weak and too corrupt for such measures to ever be achieved in a timely and
effective manner. This actually creates a great opportunity for the strong
multinationals to be better partners with the local community and facilitate
the building of roads and other public infrastructure to help develop the local
economy - a more sustainable approach that will provide host communities with
other opportunities in the formal or licit economy.

Oilprice.com: Are you proposing that multinational companies step in where
governments fail to provide? Is this feasible? How would host governments
respond and how can this be achieved without serious implications both in
terms of cost and relations?

Giroux: As I mentioned, certain activities like buying generators and
building schools, etc., are less likely to be considered "strategic" - rather
they are piecemeal, CSR-type of activities that create mixed expectations and
imbalances in zones where the discrepancies are so great. In my own research,
I find that what many multinationals do not realize is that their sheer presence
brings with it a whole host of expectations for a community about what is to
come. In this respect I am referring to visions of large-scale development,
growth, and jobs. I have had countless conversations with people in energy
producing regions and a common thread in such conversations is that they see
political elites get rich while energy companies can quickly build pipelines,
complex facilities, and have large compounds for their employees and yet roads
are not built, electricity is scarce or inconsistent, schools are underfunded
and overwhelmed, etc. In other words, community members see a mixed picture:
they recognize that the money and capacity is there but yet see none of the
benefits.

Bagley: The idea then is how can large multi-national companies --
mining, energy, transportation, for example - work together to operate differently
in these environments? A shifting of the dynamics involves a more radical way
of thinking in a way that produces more sustainable communities where small
and medium enterprises (SMEs) can flourish and really develop the economy in
tandem with the multi-nationals.

Giroux: A paradigm shift might include thinking differently about the
costs of production in such environments - in other words, not only factoring
in things like procuring helicopters, materials for building energy infrastructure,
paying employees, etc., but also contracting out the development of roads and
clean water pipelines that could provide benefits for the community as a whole.
Essentially, transforming the local community from simply 'hosts' to 'partners.'

Bagley: I totally agree. The bridge to peace and stability in many
countries, particularly conflict-affected regions, requires a delicate but
dedicated mix of diplomacy and security by all involved: the local population,
the host country government, and the economic partners and investors. Certain
countries have a military aspect to factor in as well so integrating these
very different communities is how Jellyfish creates "smart
power" for our corporate clients.

Oilprice.com: Can you give us some specific recommendations and how this
works in certain countries?

Giroux: Well, I think there are some very interesting things happening
in the Niger Delta at the moment that I think could be extracted and applied
in other areas. For example, Chevron Nigeria Ltd. Created the Foundation for
Partnership Initiatives in the Niger Delta, PIND - a $50 million fund that
seeks to provide support for socio-economic development in the region. This
might be an interesting approach to examine more closely to see who they are
working with, what are their concrete goals, and assess what type of impact
they might be able to have. Overall, I would recommend that there needs to
be a deeper debate about what CSR looks like in underdeveloped, energy producing
regions. With that, companies should make assessments when working in such
regions that not only take into account the challenges of the operating environment
but also illustrate how they can partner with the community to inspire and
produce bottom-up driven development initiatives that have local buy-in. I
would not get too complicated with this but rather participate and support
initiatives that have shared value - like roads linking cities and town, power/electricity
infrastructure, sponsoring apprenticeship programs at local schools to meet
local business needs, etc.

Bagley: Based on data and trends, as Jennifer points out in her research
is that security situations in many countries are getting worse, not necessarily
better. This has to do with a variety of geopolitical, military and economic
reasons, too, of course, but the current frameworks and approaches are not
working as best as they could. Companies can collect intelligence all day long
to be aware of or get ahead of certain threats but it still does not always
fundamentally change the operating environment. The question then becomes how
do certain economic partners such as extractive companies, multinationals and
other institutional investors think and perform differently (yet productively)
in such environments? The real potential for leadership here is to get the
extractive multinational companies to think differently in volatile environments
and to change the balance of power in a way that is beneficial for both their
ongoing operations and to the communities in which they operate. Jellyfish arranges
partnership in over 80 countries where we offer a unique platform for clients
to engage the host country governments and the local populations along with
the diplomatic and military stakeholders in the country and the region. This
use of the "smart power" paradigm by each of the players affects positive change
for all involved from an economic, diplomatic and security aspect.

We would like to thank the staff at Jellyfish
Operations for their time. For those of you interested in learning more
about how Jellyfish can help your business with their cross border intelligence
networks and advanced technological capabilities please visit www.jellyfishoperations.com

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